Below is the text of Mr Major’s speech to the Welsh Conservative Party Conference, made on Friday 6 July 1990 in Llandudno.
CHANCELLOR OF THE EXCHEQUER:
“This Conference recognises the need for stringent measures to curb inflation and to ensure growth and welcomes the specific measures to increase the commercial success of Wales.”
This motion addresses the need to control inflation and the measures that are required. It recognises – rightly – the connection between curbing inflation and promoting economic growth and prosperity.
The economic history of our first ten years demonstrates this connection with utter clarity. The reduction of inflation from the quite unacceptable levels reached in the 1970s was the essential prelude to the recovery of Britain’s industrial health and our national prosperity, and two achievements the cynics thought impossible. They are achievements we must both preserve and build on. I have no doubt that we can. But the absolute condition of our doing so is that we get inflation under control. No-one should regard this aim as an optional extra.
For there is no hiding the damage inflation does to competitiveness. To investment. To industrial relations. Where it is the mother and father of industrial strife.
On its own this would be reason enough. But there is another – equally vital – reason why we must get inflation down. And that is the social damage inflation does, to the people who are least able to protect themselves, the people who have contributed least to the problem. Inflation breeds fear and resentment. It punishes savers and penalises everyone who relies on a fixed income. That penalty is cruel, and it is permanent.
But Mr Chairman, there is a legitimate question we must answer, one that genuinely puzzles many people, not least amongst the supporters of the Party. The question is: why has inflation come back? Why has it proved such a stubborn problem? And why indeed has it risen recently, despite our anti-inflation credentials and our real determination to reduce it?
I think it is clear that the answer lies, in large part, in the tremendous surge of confidence we saw in this country in the aftermath of our third election victory in 1987. There was confidence on the part of industry, which resulted in a 40 per cent increase in business investment in the three years to 1989. That investment was of course welcome. We shall see the benefits of it in years to come – indeed, we are already beginning to see them – but the colossal scale of it nonetheless added to demand.
And just as industry and business felt confident, so too did millions of individuals. And they too expanded their spending and borrowing, so that they and their families could be better housed, and as an investment for the future. The combination of this behaviour on the part of both business and consumers at the same time was unprecedented in the last fifty years, and it is at the root of our present inflationary problems.
We were not slow to tighten policy as it became apparent this was necessary. But we can see now that our initial response underestimated the problem. However, that is only clear with hindsight. At the time, almost all outside commentators – like us – underestimated the inflationary pressures we faced. Now we need to reduce these pressures and that is why we have to maintain high interest rates, and a tight fiscal stance too.
I know high interest rates are difficult, painful. But they are unavoidable. That magic potion, the painless cure for inflation, simply does not exist. I wish that it did, but it doesn’t. The truth is, as in every other country, the use of interest rates is essential to reduce inflation.
There is no doubt, Mr Chairman, that they will work. Their effects are abundantly clear in the housing market, and in the high street too. Demand has slowed by a very considerable amount, but it is proving to be a longer haul than anyone expected. Disappointingly, we have still to see the RPI turn down, and I fear it will be a while before it does so decisively.
We have to see inflation come down – and keep on coming down. Back down to the average level of our competitors; then beyond that to the level of the best, and then lower still. Nothing less will do. For this is the absolute precondition of all our hopes for the coming years. Low inflation will deliver them for us. High inflation will destroy them.
I hope it will be clear from what I have said, Mr Chairman, that the policy is a long term attack on inflation. I have no intention of relaxing monetary policy prematurely, before the job has been done.
Inevitably this means that it will be a difficult year. I in no way underestimate these difficulties. But neither should anyone underestimate the underlying long-term strength of the economy. This will endure, and continue to work to our advantage long after our present problems have been overcome. We should not forget what has already been done and what has been achieved. In the 1980s we have seen enormous changes. Many problems that appeared to be insurmountable ten years ago have been swept away.
In 1979 no-one thought we could seriously return nationalised industries to the private sector. No-one thought that we could reform corporation and personal taxes in the way that we have done. No-one thought that we could deregulate and improve the supply side of our economy as we have. No-one thought in 1979 that a Government could successfully reform trade unions.
In the 1980s we have done all these things. Deregulated. Privatised. Cut tax rates and abolished taxes. We have moved from being a Government that constantly had to borrow to finance spending to one that has repaid a large proportion of the debts accumulated by Governments over the last 200 years. Who in 1979 would have thought that a modern Government would have repaid £25 billion of the national debt, as we have done in the last three years?
The 1980s have been one of the most successful decades in the history of the British economy. We have had strong growth in investment, in productivity, in new businesses and in jobs. Over the last six years this country has produced more new jobs than any other country in Europe. And after decades of decline, we have seen our share of world trade first stabilise and in the past year actually rise.
The effects of our policies on ordinary people up and down the country are also clear. Since 1979 real take-home pay for a married man with a family has increased by more than a third. More people now own their own homes, more people now own shares and more people than ever before have their own pensions. Ownership – with all the security and opportunities it gives you – is now an everyday aspiration for the many, not just the few.
But in Wales you do not need to look at the statistics. Here you have the evidence before your eyes. Wales is – manifestly – a success story. You have attracted businesses and investment from all over the world at a remarkable rate. Indeed, in 1988 over a fifth of all the inward investment to the UK went to Wales. Companies like Toyota, Bosch and Ford are investing billions of pounds in the principality. They chose the UK in Europe, and in the UK they chose Wales.
Mr Chairman, we all know that Governments cannot create jobs and Ministers cannot legislate for prosperity. But I believe that much of the success of Wales in the last ten years flows from the commitment, flair and energy of Nick Edwards and Peter Walker. They have applied the Government’s policies with enormous vigour and imagination and it has produced very real rewards for the people of the Principality. There is no-one better than David Hunt to build on that.
Ten years ago Wales was still heavily dependent on a narrow range of heavy industries. In the main, these were nationalised corporations, unproductive, inefficient and loss making. But today the prosperity and jobs of the Welsh people are based on a more balanced and a wider range of economic activities. Who would now turn the clock back? And if so, for what reason?
That may sound like a rhetorical question. But it is not. For – amazing as it may seem – there are people who want to turn the clock back, for Wales, and for Britain. This regressive organisation goes under the name of the Labour Party.
A couple of weeks ago the nation had the opportunity to see an interview with the leader of this small and increasingly desperate band. A rare opportunity indeed – for as a species they tend to shun occasions where they will be forced to answer straight questions. And what did we hear? Words, yes – lots of them. But answers? No, none.
All the old Labour reflexes were there: tax to the hilt and spend as if there was no tomorrow. But what about taxation? If you look carefully you’ll see that Neil Kinnock committed himself to compensate only working people with his tax plans. Why only “working people”, I asked myself?
I have found the answer. It lies buried in their last policy document: “Meet the Challenge, Make the Change”. In that, you’ll find that Labour plan a new tax on savings, to be levied at 9 per cent.
Savers have always suffered under Labour. In the 1970s pensioners saw Labour rob them of their savings, by letting inflation rip. And they plan the same again. On my calculations that tax plan alone would make a million people worse off, and half of those are pensioners.
And then there’s Mr Kinnock’s confident assertion that fourteen out of fifteen basic rate taxpayers would be no worse off. If he knows that, he knows who they are, but he doesn’t dare tell them. If he knows that, he knows what his growth projections are, but he doesn’t dare announce them. If he knows that, he knows what their public expenditure plans really cost, but he won’t tell us.
Or, if he doesn’t know, then this “fourteen out of fifteen” line is just make believe, an empty phrase that sounds good but means nothing.
But a tax on savings is just the tip of Labour’s tax iceberg. Let me give you a flavour of some of their other pledges:
– They intend to freeze the married couple’s allowance. That would make all married couples in this country, 24 million people, worse off.
– They have a plan to abolish the upper earnings limit on National Insurance contributions, making over 3 million people worse off.
– And on top of this Labour plan to increase the top income tax rate to 50 per cent.
– They plan to restore capital transfer tax and to meddle with mortgage interest relief.
– And they plan to introduce a new local government tax. But they won’t tell us what it is. When Mr Dimbleby asked Mr Kinnock all he said was: “I’m sorry, I can’t enlighten you”.
Well, I can enlighten Mr Kinnock about one thing. Taxpayers aren’t fooled. They know Labour would cost them dear. And as for spending, all we ever hear is pledge after pledge from Labour spokesmen, but never a number in sight.
Mr Kinnock hasn’t been doing his sums. Perhaps he won’t add up the numbers. Perhaps he can’t add up. Perhaps it’s not the numbers that don’t add up. Perhaps it’s Mr Kinnock.
The fact is, the Labour Party has nothing to offer this country other than a determination to put the clock back. I have no doubt that the Party that has these policies to secure Britain’s future is the Conservative Party. We are the Party with the policies that will bring inflation down and keep it down. We are the Party that will promote saving. We are the Party that will enable Britain’s businessmen to translate our opportunities into success.
Mr Chairman, I believe that in the next decade these opportunities will be immense. The next ten years will be years of great change and rapid progress. The single market in Western Europe will be completed. The dramatic transformation of the countries of central and eastern Europe will open up wholly new trading opportunities.
In the 1990s there will be more countries that are genuinely free; and there will be a wider and more prosperous world market. There will therefore be tremendous opportunities for this Principality and for the other parts of the United Kingdom. This will be a world in which British businesses will be able to generate the wealth and the jobs that will provide prosperity, security and opportunities for all our citizens.
The economic changes of the 1980s mean that this country starts with a formidable base to take advantage of the 1980s. We have a sound base; and we have the flair and enterprise to build on it. We have immense opportunities. I believe that the long term outlook for the people of this country is brighter today than at any time for a generation.